PBOC Adviser Says Additional Capital Outflow Curbs are Unlikely

  • Fan Gang says measures to stem outflows have been effective
  • Lower foreign currency reserves helps improve efficiency: Fan

Chinese policy makers’ intensified efforts to stem capital outflows have been effective and new measures are unlikely, said Fan Gang, an adviser to the People’s Bank of China.

“Things are stabilizing now,” said Fan in an interview with Bloomberg Television in Shanghai. While the market has started to respond, policy makers won’t completely drop intervention yet, he said.

Capital flight has accompanied the yuan’s steepest annual drop in more than two decades. Policy makers strengthened measures at the beginning of the new year to reduce outflows, including adding extra requirements for citizens converting yuan into foreign currencies after the annual $50,000 quota for individuals reset Jan. 1.

China’s foreign reserves fell for a sixth month in December to a fresh five-year low of $3.01 trillion. The regulator said the central bank’s effort to stabilize the yuan was the main reason for the drop last year.

Fan said the decline in foreign reserves is "good news" in the long term, because large foreign currency holdings by the government are inefficient. Much of the yuan that’s been converted into dollars hasn’t left the country, but shifted from official holdings to the private sector, Fan said. Banks can use those funds to invest in higher-return assets, which improves efficiency, he said.

The yuan’s inclusion in the International Monetary Fund’s reserve currency basket also means China needs fewer rather than more foreign reserves, according to Fan. He said the PBOC didn’t intervene much in its foreign currency holdings, and it wants to see the size reduce "smoothly, gradually."

When asked whether China should drop its growth targets to focus more on reform, Fan said it’s more likely policy makers will aim for a range rather than a specific number. He said a goal of 6.5 percent to 7 percent growth is probably what policy makers would aim at, which he said is "achievable" for China as it addresses reform issues.

— With assistance by Tom Mackenzie, and Miao Han

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